FinMin spots 4 banks for specialised MSME branches

Moneycontrol Bureau

To encourage entrepreneurship among young educated people, the finance ministry has initially identified four small size banks including Dena Bank, Oriental Bank of Commerce (OBC), Corporation Bank and Indian Bank to kick start a special campaign in extending credit to micro, small and medium enterprises (MSME) sector in association with Small Industries Development Bank of India (SIDBI).

"This is just a starting point. There should be 110 specialized branches across the country," Sunil Soni, additional secretary, the department of financial services, the government of India, told reporters here in Mumbai while inaugurating a portal christened as smallB.in, an initiative by SIDBI to promote youth enterprises.

"We are going to start this on an experimental basis. Going forward every bank will follow it. However, we have not set any target for individual banks. We are now making financing available for MSMEs. We have already created the enabling environment. If we can create 10,000 such entrepreneurs every year, it will be a huge achievement for the country," he said.

The average age of Indians is just at 28 as against 38 in China. Out of 2.40 crore university graduates only 70 lakh people were absorbed in organized sector for employment. The latest ratio, according to Soni, may be at 3 (cr): 40(lakh). The increase in the spread is a concern. It suggests declining jobs in organized sector. MSME creates many job opportunities across the world and in India, it is seen as silent driver of economy.

Those dedicated branches will process faster MSME loans in consultation with SIDBI and thereby will help young businessmen/women to grow.

Meanwhile, the finance ministry sees a changing role of SIDBI, which was earlier competing other banks in extending loans to MSME sector. It should act as a loan facilitator instead of competing other banks in giving MSME loans, the ministry is of opinion.

However, this policy change will not debar SIDBI from giving loans and focus only on loan syndications.

"Being a commercial organization SIDBI has to make money. SIDBI will continue to give loans but for venture capital, risk capital. They will bridge the gap whenever there is a shortfall of loans from banks," Soni replied to a moneycontrol.com query.

"We will facilitate loans from different banks wherein we will earn fee-based income. In total there are 97,000 bank branches in India. At SIDBI, we have just more than 90 branches. We are trying to increase our existing fee-based income by three to four times in next five years," said S Muhnot, CMD, SIDBI.

In its Budget proposal the government had announced to give Rs 5000 crore on account of guarantee fund to SIDBI. This is likely to protect the asset quality of MSME credit. For all the loans given upto Rs 1 crore 75% is guaranteed by SIDBI at the cost of 1% charge. In case a MSME loan goes bad, this facility is available from SIDBI.